Heading into a seasonally weak period can be cause for reviewing ETF exposures. Indeed, last week, the BlackRock Target Allocation Team, which runs model portfolios followed by many advisors, did just that. They reduced their equity exposure and reduced some growth allocations in favor of value.
VettaFi believes BlackRock’s team manages approximately $100 billion in assets in a tactical manner. Allocation changes have occurred four or five times a year and can have a sizable impact on individual ETFs. According to BlackRock, the team reduced its overweight in stocks relative to bonds to just 1%, from a prior 4%. Within the equity category, they also made some shifts to reduce the allocation to growth strategies. This shift was three months after BlackRock had boosted growth exposure. Looking further back in 2024, the firm added exposure to quality U.S. stocks in March.
“While earnings continue to power forward, the level of surprises and estimate revisions suggest a potential moderation of the earnings-fueled advantages of the last 18 months,” noted Michael Gates, lead portfolio manager of BlackRock’s Target Allocation ETF model portfolio suite. ”We are transitioning from a period marked by relatively clear and stable factors into a new phase, which includes an easing Fed and potential seasonal and election related volatility.”
Gates added that the firm continues to favor growth equities, particularly in the U.S., but is seeing earnings improvements in both international and value stocks relative to growth.
International Equities in Focus
Based on trading activity on Thursday, VettaFi believes the iShares MSCI EAFE Value ETF (EFV) was one of the ETFs boosted in the model portfolios. The then-$15 billion ETF traded 80 million shares on Sept. 5, approximately 40 times its average daily volume. Meanwhile, the iShares MSCI EAFE Growth ETF (EFG) and the iShares S&P 500 Growth ETF (IVW) traded more than 10 times and five times their average. VettaFi believes some of the model’s exposure in EFG and IVW were sold to help fund increased exposure to EFV.
What’s Inside EFV vs. EFG?
EFV consists of value-oriented developed market stocks. The fund’s largest sector exposures are to financials (30% of assets), industrials (12%), healthcare (9%), consumer staples (9%), and energy (7%). Meanwhile, Japan is the largest market -- at 22% of the portfolio -- followed by the United Kingdom (17%) and Switzerland (10%).
Companies like Allianz, HSBC, Novartis, Roche, and Shell are represented in EFV’s top 10 holdings.
In contrast, EFG has just 11% in financials, but more exposure to industrials (21%) and healthcare (19%). Sectors like consumer discretionary (15%) and information technology (15%) that U.S.-focused investors expect in a growth strategy are here too. EFG also has 22% invested in Japanese stocks but has less exposure to the United Kingdom (12%) and more invested in France (12%) than EFV.
ASML Holding, AstraZeneca, LVMH, Nestle, and Novo Nordisk are among EFG’s largest holdings.
The BlackRock Model Allocation team had previously allocated to BINC and the BlackRock US Equity Factor Rotation ETF (DYNF) during 2024. DYNF and BINC had $9.8 billion and $3.5 billion of net inflows, respectively, in the first eight months of 2024.
According to Gates, “accessing alpha-seeking strategies through an active ETF provides the potential for more dynamic alpha seeking while retaining the tax efficiency, liquidity, and transparency benefits of the ETF wrapper. These management teams have deep expertise in markets or investment styles that we cannot access via index ETFs.”
